Computer Chronicles Revisited 90 — COMPUTEX Taipei 1987 and Hsinchu Science Park

We close out the fourth season of Computer Chronicles with a visit to Taiwan. This July 1987 episode focused on the growing influence of Asia-based PC clone manufacturers in the U.S. market. In a brief studio introduction, Stewart Cheifet showed Gary Kildall one such clone from the Taiwanese company Multitech. Cheifet noted that the computer, monitor, and disk drive were all made in Taiwan. Indeed, Taiwan was the world’s leading manufacturer of computer monitors and disk drives.

Cheifet added that Taiwan and South Korea were also leading producers of IBM clones, and in fact taking quite a bit of market share away from Big Blue and other U.S.-based manufacturers. Was this a threat to America’s leadership role in computer technology? Kildall quipped that a used IBM PC-AT was now available for $995 while a comparable Asian clone was just $695.

More to the point, Kildall said he didn’t see a real threat to American leadership. Asia’s growing market share was about the technology of manufacturing rather than the technology of computing. The United States would always have a large group of people interested in sales and service, reliability, state-of-the art computing, et cetera, and they would continue to buy the more expensive machines. The Asian clones acted as good “filler” machines to perform tasks like word processing. But he didn’t actually see the Asian machines actually catching up to the American PCs in terms of technology.

Taiwan’s “Reverse Brain Drain”

There were no additional studio segments in this episode. Instead, Stewart Cheifet narrated an extended travelogue segment recorded in Taiwan in June 1987. The first segment focused on Hsinchu Science City, located just outside the capital city of Taipei. Cheifet opened by noting that the Republic of China’s 19 million residents currently enjoyed one of the highest standards of living in Asia.

John C.I. Ni, director general of Taiwan’s Industrial Development & Investment Center (IDIC), told Cheifet that the country’s economic growth was based on its fast, expert-oriented industry. Cheifet noted that a large proportion of those exports fell into the electronics category, although most American buyers wouldn’t recognize the local brand names. From electric fans to refrigerators to computers, Taiwan turned out products for such companies as Amana, GTE, ITT, and IBM. The Taiwanese companies had a special relationship with their American counterparts known as “original equipment manufacturing” (OEM).

Cheifet said the OEM connection was clearly evident at the recent COMPUTEX Taipei show, which was held from June 8 to 14, 1987. COMPUTEX was one of the first computer trade shows to be held in Taipei’s World Trade Center, and it featured dozens of small booths with intriguing products and names. Some, like Tatung, were well known in its home market, with sales in the hundreds of millions of dollars. But many booths featured less-famous manufacturers like Kingtech, Halikan, and Oemtek–making it clear from the start that buyers were free to choose any name they liked.

Even larger Taiwanese companies like Mitac and Microtek International were satisfied with the “behind the scenes” approach to marketing their products, Cheifet said. Bobo Wang, co-founder and president of Microtek, told Cheifet that his company’s brand wasn’t well known like Hewlett-Packard, and it would take several years to set up a distribution channel and develop brand recognition in the United States. So Microtek’s strategy was to work with a reputable American company and serve as its OEM. Microtek’s profits were lower with this approach, Wang conceded, but their products ultimately served more people.

Until recently, Cheifet said, Taiwanese exports were associated with cheap, mass-produced goods and an abundant supply of labor. But that image had changed. Vincent C. Siew, director general of Taiwan’s Board of Foreign Trade, said the country’s standard and cost of living had grown rapidly in the past few years. This meant higher wages for labor. The economy therefore no longer had to depend as heavily on traditional labor-intensive industry.

Cheifet added that the increasing wages of Taiwan’s factory workers did not seem to concern the local computer companies, who saw their cost advantage as engineering rather than manufacturing. Stan Shih, president of Multitech Industrial Corporation, told Cheifet that in the computer industry the labor and assembly represented less than 2 percent of the a machine’s total costs. The more significant costs were for research and development, marketing, product support, and overhead. Another company president, C.S. Ho of Mitac International, added that the compared to the United States, the cost of Taiwanese computer brands were still much cheaper.

In terms of technical education, Taiwan’s schools graduated as many engineers on a per-capita basis as Japan, Cheifet noted, which was a much higher proportion than in the United States. This influx of engineering graduates propelled Taiwan’s computer industry from a source of cheap clones to an original contender. Mitac’s Ho said that Taiwan had the technical capability to develop high-end PCs.

Cheifet said that at the recent COMPUTEX, there were still plenty of the peripherals and computer components that initially made Taiwan a major exporter. But the show also featured some distinctly new products as well from the leading local companies. Tatung, one of the country’s biggest companies, was the world’s largest producer of computer monitors. And one of its biggest clients happened to be the biggest computer company in the world–IBM. Tatung also operated its own college, the Tatung Technical Institute, which started out as a vocational school but now offered advanced degrees in everything from computer science to management.

Tatung president W.S. Lin told Cheifet that a reputation for quality exports was critical to Taiwan. He noted that Taiwan’s situation was similar to that of Japan after World War II. Initially, Japan’s postwar exports were also considered poor and unreliable. But like Japan, Taiwan had now developed a central quality authority to certify exports.

Among Taiwan’s top exporters, Cheifet said, was Multitech. Started in 1976 with $25,000 in capital, Multitech now employed 2,700 people and expected to sell $350 million in computers in 1987. Cheifet claimed that Multitech founder Stan Shih had been called the “Steve Jobs of Taiwan.” Wang said he didn’t agree with that characterization given that Taiwan’s computer industry was still relatively small and the country lacked a mature capital market. So Multitech was in a completely different–and more difficult–position than Apple.

Cheifet said that Multitech was a major exporter to the Untied States and manufactured PCs for Texas Instruments, and also made computers under the Franklin label for Sears. (Ironically, Franklin used to make Apple II clones until they got sued into bankruptcy.) Multitech was now just beginning to sell to the American market under its own Acer brand, but Shih believed it would still be sometime before Taiwanese brand names became common abroad.

Shih said there were two major problems selling Taiwanese-branded PCs in the United States. The first was image. Multitech had to establish itself as a quality product, which would take time. The second was scale. Multitech still wasn’t big enough to fully support the U.S. market.

Cheifet added that Multitech was located in Science Park, which was a government-sponsored hi-tech industrial community that was part-Silicon Valley, part-free trade zone, and part-university campus. Some of Taiwan’s other computer leaders were also in Science Park, including Mitac and Microtek. In particular, Microtek was an unusual example of a “reverse brain drain.” While most of Taiwan’s overseas-educated students tended to remain abroad, Microtek’s Bobo Wong actually quit his job in the United States to look for new opportunities back home. Wang said he and his co-founders were working for Xerox in Los Angeles doing product design. Then they reached a sort-of mid-life crisis and decided they should do something on their own.

Microtek’s principal product was a desktop scanner, Cheifet noted, which was sold in the United States under the AST Research label. In fact, Microtek was now the world’s leading manufacturer of scanners, with about 69 percent of the market. Wang told Cheifet that he was skeptical of traditional offshore manufacturing, at least when it came to PC products. He said the evolution of technology was much faster than with other products. The product life cycles tended to get shorter and shorter. That meant there was a tremendous need for developing new product. And that didn’t leave much time to move the manufacturing offshore. So the new trend was to have manufacturing and research and development more closely tied together.

Cheifet said that like most companies in Taiwan, Multitech and Microtek both started small, and they continued to see small size as a distinct advantage, at least in the computer business. Wang said that Taiwan was not used to big corporations. The economy’s structure worked against that. So most of the companies were much smaller in scale, with between 100 and 500 employees, that could move much faster.

Another small, independent manufacturer was the K.S. Brotherbox Company. Cheifet said it marketed products under the Kingtech label and was an example of the small exporter. Kingtech didn’t have a hi-tech plant in Science Park. Rather, its factory, offices, and even living quarters for some of the employees were in a single building in downtown Taipei. Kingtech’s assembly line turned out PC/XT and PC-AT compatibles, as well as a new portable 286 machine with an LCD screen. Wilma Wang, Kingtech’s export manager, told Cheifet the company exported to the United States, Canada, South Africa, Switzerland, Holland, England, Australia, and Italy.

Taiwan had less than half the population of South Korea, Cheifet noted, yet Taiwan had twice as many small electronics companies–over 65,000. And almost 3,000 of them made computers. That might seem like a challenge to the foreign buyer but it was also an advantage. John Mesenbring, a vice president with International Instrumentation Inc., told Cheifet that the larger Korean companies like Hyundai and Samsung already had well-established distribution channels in the United States. So when you wanted to buy from those companies you went through a U.S. sales representative. But in Taiwan, many of the companies were American financed and owned, and many of them were just small shops. So economically speaking, you didn’t have the same monopoly situations that you saw with South Korea.

Jack Tramiel’s Cheapness Won Out Over His Patriotism

In a brief American interlude, Wendy Woods presented a report from the Sunnyvale, California, offices of Jack Tramiel’s Atari Corporation. Woods said that with the exception of its monitors, every product that Atari made–from game machines to the ST computers and laser printers–were manufactured in Taiwan. Atari’s U.S. facility was just a “big think tank” where the products were designed. It was cheaper this way, Woods said. Labor was cheaper overseas, and Atari made no bones about its interest in cutting costs.

Neil Harris, Atari’s director of communications, told Woods that it was possible to do manufacturing in such a way that was not too labor-intensive now. But if you didn’t have a very automated factory, it made sense to do your manufacturing overseas.

But Woods added that engineers had some trouble with this arrangement. Communication was a problem when you and your factory didn’t share the same language. There was also the issue of shipping time. It took up to three weeks for product to reach the U.S. from Taiwan. Another disadvantage was that Atari’s current Taiwan plant was already working at full capacity and the company wanted to further expand its manufacturing capability. So armed with millions of dollars from its recent public stock offering, Atari was looking into establish a manufacturing plant in North America.

Atari’s Harris said the bottom line was that the consumer didn’t care if a product was made in the United States, Taiwan, or on Mars. The customer was looking for a price and a value that Atari had to provide. And at this point, Atari thought it could provide that price and value with domestically manufactured products.

The Future Looked Bright for Taiwan’s Tech Industry

Returning to Taiwan, Stewart Cheifet said that the country’s success as “PC vendor to the world” was giving way to a new eagerness to become an innovator as well. The Republic of China’s government was providing some support for this. The Science Park project was an attempt to merge some of the entrepreneurial features of Silicon Valley with the investment appeal of a free-trade export zone. The 1,000-acre park had around 80 companies installed or waiting to move in–just a hint of what was planned for the future.

Choh H. Li, the director general of Science Park, told Cheifet that the total output for 1987 was expected to be around $700 million. In 10 years, he expected it would be $7 billion. Today, the area around Science Park had a population of 400,000. In 10 years it would be around one million people.

Cheifet said that before Science Park, venture capital in Taiwan usually came in the form of a government grant. Today, Science Park had five private venture capital firms, along with banks and two universities on the outskirts. But Science Park still had a long way to go. Li said that in addition to the area’s physical environment there was a good professional services industry. Taiwan as a whole was “way behind” in this area, however.

At Mitac, Multitech, and Microtek, Cheifet said the search for new products was central to each company’s plans for the future. Microtek, the market leader in desktop scanners, was exploring the links between that technology, laser printers, and optical disks. Microtek’s Bobo Wong said that a CD-ROM could potentially store about 10,000 regular-sized documents in an image format. A scanner would be a necessary input device to create those images.

Meanwhile at Mitac, best known in the U.S. for producing floppy disk drives, Cheifet said the emphasis was also on desktop publishing on the software side. While looking to a solution for the problem of the memory-hungry Chinese alphabet, Mitac discovered a way to reduce the memory required to story any type of character. Mitac president C.S. Ho explained that his company was developing a “universal engine” that could display Chinese, English, or Japanese characters at high speed and using less memory.

Chiefet said that almost everyone in the PC business was wondering how IBM’s new PS/2 architecture would affect clone sales, and Taiwanese companies were no exception. While some companies were trying to reverse engineer the PS/2, others were contemplating a different course of action. Multitech’s Stan Shih said his company was looking to join an outside group of clonemakers who wouldn’t follow the new PS/2 standard. He noted that group represented more than 60 to 70 percent of the market.

Cheifet said that Taiwan’s official agency for hi-tech research, the Industrial Technology Research Institute (ITRI), was originally designed to perform the basic research and development that many smaller Taiwanese firms could not afford. ITRI president Morris Chang told Cheifet the government initially provided 100 percent of the agency’s funding. But as time progressed, the industry began to find ITRI’s resources to be very attractive to them.

ITRI’s electronics research arm was known as ERSO, Cheifet said, and had both short- and long-term research programs. For Taiwan’s chip industry, ERSO designed application-specific integrated circuits (ASICs). Indeed, Taiwan was the world’s leading supplier of specialized chips for consumer products like toys, telephones, and watches.

Cheifet said that ERSO’s work on the Intel 80386 microprocessor gave Taiwan’s PC makers the jump on some of their American competitors. Multitech had a low-priced 386 PC on sale just a few weeks after Compaq’s initial introduction. ITRI’s Chang said he wasn’t looking for any dramatic breakthroughs. What ITRI was trying to do was focus on the solid, but mundane, work that was necessary to build the foundation for upgrading Taiwan’s industry one step at a time.

But there were some cutting-edge products at ERSO, Cheifet noted, and they were beginning to bear fruit, such as Chinese-language voice recognition and speech synthesis. Since Chinese is a tonal language, paper dictionaries were only imperfect guides to pronunciation. To overcome this shortcoming, ERSO developed a CD-ROM dictionary complete with sound and graphics. It could be played on any compact disc player through a black box called a Multifunction CD-ROM Controller. The controller, initially meant for school and libraries, would sell for about $3,000.

Cheifet said that for Taiwan’s new generation of entrepreneurs, the future looked bright. Some of the country’s biggest export clients were beginning to talk about tariffs and protectionism, but trade problems hadn’t affected sales figures yet. Multitech’s PC sales were up 100 percent, and the company had a long-term strategy based on the ancient Chinese game of Go. Multitech’s Stan Shih explained that Go was a game that relied on using different types of strategy. Similar to the computer industry, you needed to build a solid base that allowed you to take risks later.

In closing, Cheifet said that the quiet success of Taiwanese computers overseas was a sign of the industry’s maturity and the key ingredients of that success were not difficult to uncover. Stan Shih told Cheifet that to win in the computer business, the real long-term weapon was human resources–and Taiwan had lots of that.

Analyst Insisted IBM Would “Conquer the Clones”

Cynthia Steele presented this week’s “Random Access,” which was likely recorded sometime in late July 1987.

Children of Hsinchu Science Park Are Now All Grown Up

Among the many Taiwan companies discussed in this episode, the most recognizable today is probably Acer. According to a January 2023 report from Gartner, a tech analyst firm, Acer is the sixth-biggest personal computer vendor in the world, with a market share of about 6.7 percent. It actually ranks just behind another Taiwan-based company, ASUS, which was founded by four ex-Acer hardware engineers in 1989. (The largest PC manufacturer in the world, Lenovo, is based in mainland China.)

Stan Shih founded Multitech in 1976 with his wife, Carolyn Yeh, and three other partners. Shih earned his bachelor’s and master’s degrees in electrical engineering from Taiwan’s National Chiao Tung University. Before starting Multitech he worked for Unitron Industrial Corporation, where he designed desktop calculators, and then for Qualitron Industrial Corporation, which developed the world’s first pen watch. Multitech itself started out as a training and consulting business before expanding into manufacturing in 1981.

Shih served as Multitech’s chairman from its founding in 1976 until later in 1987, when the company was formally renamed Acer. Shih continued as Acer’s chairman and CEO until his retirement in 2004. He briefly returned as chairman from November 2013 to June 2014 to oversee a leadership transition.

Another company that is still around and well-known today is Microtek, which continues to dominate the scanner and digital imaging market. Microtek was one of the earliest successes of the Hsinchu Science Park project. Bobo Wang told the New York Times in 1982 that he returned to his native Taiwan due to the promise of $1 million in startup funds from Hsinchu Science Park. That wasn’t a lot by Silicon Valley standards, he noted, but it was enough to hire 75 employees–50 of them research and development engineers–which would not have been possible on a similar budget in the United States.

Wang earned his electrical engineering degree from National Taiwan University in 1969. After completing mandatory military service, Wang relocated to the United States in 1971 and earned a master’s degree at UCLA. He then spent the next eight years working for Xerox in the Los Angeles area. He started out as a testing engineer on mainframes before moving on to work with microprocessors. As Wang told Stewart Cheifet, he had a mid-life crisis of sorts when he turned 35 and decided to return home to Taiwan, where he co-founded Microtek with four other ex-Xerox colleagues. Curiously, I haven’t been able to find out anything about Wang’s activities since around 1990.

A third company that is still involved in tech today is MiTAC. Like Microtek, MiTAC International was founded in Hsinchu Science Park in 1982. MiTAC was apersonal computer design and manufacturing business from the outset. The company started exporting its computers to overseas markets in 1985, and by 1990 was the top PC brand in a number of European countries, including the United Kingdom and France. MiTAC went public on the Taiwan Stock Exchange in 1990 and opened its first factory in mainland China in 1993.

In the 21st century, MiTAC shifted away from personal computers to consumer electronics and Internet-enabled devices, such as GPS systems and dashboard cameras. The company took on its present name of MiTAC Holdings Corporation in 2013 and moved into a new headquarters in Taoyuan, a city in northeastern Taiwan, in 2017.

Notes from the Random Access File